London stocks closed sharply higher on Thursday, driven by falling bond yields and a declining oil price as markets absorbed the Bank of England’s latest rate decision.
The FTSE 100 index ended the session up 127.67 points, or 1.2%, closing at 10,816.14, while the FTSE 250 advanced 281.94 points, also 1.2%, to reach 24,352.14.
The Bank of England’s Monetary Policy Committee voted 6-3 to hold bank rate at 3.75%, repeating the split seen at July’s meeting, with Huw Pill, Megan Greene and Catherine Mann again backing a 25 basis point increase.
Despite the unchanged headline decision, a notable hawkish shift emerged within the majority, with five of the six members who supported a hold explicitly outlining conditions that could lead them to vote for tighter policy.
The prolonged Middle East conflict is pushing energy prices higher and worsening the near-term inflation outlook, adding urgency to the committee’s deliberations.
Governor Andrew Bailey warned that “policy may have to tighten” if the conflict in the Middle East persists, while Sarah Breeden said a hike would be appropriate if “second-round effects crystallise.”
Clare Lombardelli said the “case for raising bank rate is building,” Dave Ramsden said “there could be a case for increasing bank rate,” and Alan Taylor said second-round effects “would build the case for tightening.”
Kallum Pickering, chief economist and deputy head of research at Peel Hunt, said: “While the meeting decision was in line with our own call and with market pricing, the tone of the minutes has a more hawkish tilt compared to July.”
Pickering still expects the Bank of England to hold at its November meeting but acknowledged the risks to that call have “grown,” noting that with five of the six holders setting conditions for a hike, only two members need to switch sides.
Citigroup analyst May Rostom believes a quarter-point rate hike is on the cards in November, saying “Overall, we think the MPC are bracing us for a hike in Q4,” with everything hinging on developments in the Middle East.
JPMorgan analyst Allan Monks said the Bank of England is “gearing” up to hike, forecasting rate increases in both November and next February, with the bigger surprise being the central bank’s shift to multi-year guidance on quantitative tightening.
Monks added: “This is a clear and assertive plan designed to reduce uncertainty at a time when market conditions are volatile.”
Across the Atlantic, Wall Street rebounded after Wednesday’s falls that followed the US Federal Reserve’s first quarter-point rate increase in just over three years, lifting the target range for the federal funds rate to 3.75%-4.00%.
Fed chairman Kevin Warsh said “inflation is the problem and has been for the last five-and-a-half years,” as analysts at Morgan Stanley suggested the characterisation of the hike as removing accommodation points toward further tightening ahead.
Morgan Stanley expects the Fed to raise rates again in December and in March 2027, adding to expectations of a prolonged tightening cycle on both sides of the Atlantic.
On the FTSE 100, miners Endeavour Mining, Antofagasta and Anglo American were among the session’s biggest gainers, rising 3.6%, 3.0% and 3.6% respectively, as the gold price climbed to 4,356.36 dollars an ounce.
SSE rose 3.6% after Berenberg raised its share price target and reiterated a “buy” rating, saying an “unprecedented, extended and highly visible growth opportunity lies before SSE, which is not reflected in its valuation.”
Clothing and homewares retailer Next climbed 2.5% after raising its full-year pre-tax profit guidance to £1.26 billion from £1.24 billion previously, though it reduced its UK sales growth forecast to 2.0% from 2.8%.
AJ Bell investment director Russ Mould said: “The company’s ability to manage expectations is unrivalled and once again it has delivered results materially ahead of previous expectations.”
Next warned that “primary concerns are rising inflation, higher mortgage interest costs and a weak employment market,” while cautioning these worries would be compounded by any tax increases.